26 July 2009

The uncorrected transcript of the appearance by Lord Adonis. the UK Secretary for State for Transport, before the House of Commons Transport Committee inquiry into the Future of Aviation (see previous post) on 15 July 2009 is now available. The following is what he said on the subject of the UK Air Passenger Duty (see previous post):

"Q577 Chairman: I would like now to go back to aviation. Could you tell us what is the primary purpose of air passenger duty?

Lord Adonis: The primary purpose is to recover the environmental impacts that aviation makes.

Q578 Chairman: Do you think that aviation does pay for its environmental impacts?

Lord Adonis: We think that with air passenger duty as it currently stands it broadly does so, but of course as the shadow price of carbon changes that judgment will change over time.

Q579 Mr Clelland: Does that mean that that levy is going to be ring-fenced to use for reducing carbon in that area?

Lord Adonis: All levies of this kind, of course, go into the general pot so far as the Treasury is concerned.

Q580 Mr Clelland: The objective of the levy is to deal with the impact of air travel on the environment but the actual levy is not going to be necessarily used for that purpose.

Lord Adonis: The Chairman said what is the primary purpose; I said the primary purpose was to meet the environmental impacts of aviation but it is also a contribution to the wider cost of public services and of course the Treasury would not accept a case for ring-fencing it given the wider role.

Q581 Chairman: Would you be concerned if air passenger duty was seen to threaten the viability of some regional airports?

Lord Adonis: We do not believe that it does so.

Q582 Chairman: Has a case ever been put to you that it does and hoe many representations have you made?

Lord Adonis: We think it is appropriate. I will be quite frank, Chairman, I do not think aviation has a credible future unless it is able to make a bigger contribution to meeting its environmental costs and we therefore stand by decisions we have taken in respect of air passenger duty.

Q583 Graham Stringer: Do I understand the primary purpose of air passenger duty as being to pay the environmental cost for aviation, because when Kenneth Clark introduced it, it was to get over the last recession, it was just a tax?

Lord Adonis: I do not have his explanation to hand but I believe when he introduced it his explanation of the purpose was in terms of the environmental benefits that it would bring about, if aviation met a larger share of the cost of the impacts that it creates on society.

Q584 Graham Stringer: I heard him say the opposite but we can check the record.

Lord Adonis: I am happy to produce the words at the time but it is certainly our view that it is important that the taxation ensures that the aviation industry does meet its environmental costs.

Q585 Graham Stringer: The latest increase will take it well past its environmental costs, will it not?

Lord Adonis: That is not our judgment, our judgment is that it about meets its environmental costs.

Q586 Chairman: The aviation industry is extremely worried about air passenger duty.

Lord Adonis: In my experience all industries are always worried about taxes on them, that is just a given I am afraid in any industry. All industries would dearly love taxation to be reduced on them and of course they quite appropriately make representations to ministers to have those taxes reduced.

Q587 Chairman: Do you see the Government having any role in relation to taxation in the current economic climate?

Lord Adonis: It is not the Government's intention to reduce air passenger duty but future taxation policy of course is not for me, it is for the Chancellor.

Q588 Chairman: What would you be recommending the Chancellor does?

Lord Adonis: That is a matter for the Chancellor; I do not think I can comment on decisions he might take.

Q589 Chairman: You must be making some kind of recommendation.

Lord Adonis: I do believe it is right that aviation should meet its full responsibilities in terms of its environmental impacts.

...

Q593 Mr Wilshire: You said you did not think air passenger duty would have any harm and it seemed to cover the costs. Does that mean that you consider our continental competitors, who have either frozen their tax or reduced it or abolished it - do you think they are all wrong and we are right?

Lord Adonis: These are decisions that every government has to make for itself. I certainly would not dream of criticising fellow European governments, they have to take these decisions in respect of their own circumstances.

Q594 Mr Wilshire: But they have done what you consider to be wrong for this country?

Lord Adonis: They do not take decisions in respect of Britain, just as I do not take decisions on their behalf.

Q595 Mr Clelland: Is there not a big problem with this because at the moment air passengers can voluntarily pay a carbon offset when they travel. They pay an additional fee and that money specifically goes to reducing carbon emissions. If we put on a new air passenger duty is that not going to encourage passengers not to pay their carbon offset, yet the air passenger duty is not going to go for the purposes of reducing carbon so we are actually going to lose the benefit for the environment.

Lord Adonis: The funding from air passenger duty like all sources of income to the Treasury goes on all of the purposes of government. One of the principal purposes of government, as we have seen today in Ed Miliband's statement, is carbon reduction. In my Department we very recently announced a £250 million fund to incentivise motorists to buy ultra low carbon or electric vehicles.

Q596 Mr Clelland: But how is it going to help if passengers now say "I am not going to pay the voluntary levy because you have put this additional tax on us"; how is it going to help the environment?

Lord Adonis: There are many different sources of funding for carbon reduction. The Government is responsible for the public funding and that public funding goes into a pot, one of the principal objectives of which is carbon reduction so it is perfectly sensible what we do now. The decisions that individuals make on their account thereafter are a matter for them.

Q597 Chairman: Thank you very much for coming.

Lord Adonis: I would be happy to provide any more information that would be helpful for you."

I note in particular Q578 from the Chairman and Q585 from Graham Stringer, Labour MP for Manchester, Blackley, and the replies from Lord Adonis.

On 23 July 2009 Airline Business reported on an air rights disagreement between Uruguay and Argentina that is seeing the Urguayan carrier, Pluna, switch its attention to Paraguay where it plans to create a mini hub.

On 25 July 2009 the Toronto Star carried a report about the views Transport Canada has about Emirates Airline and the Emirates response which states that the department is making "slanderous" allegations. This story is being discussed in an aviation forum on Airliners.net. On 4 June 2009 the Financial Post reported Emirates CEO Tim Clark as saying the the Canadian government's approach was "ludicrous" and "protectionism of the worst kind." The Star carried an earlier report about lobbying by Emirates on 28 February 2009.

My read of the situation is that my Canadian counterparts are grappling with one of the more fundamental aeropolitical dilemmas of the last decade - how should governments (it is governments that exchange the air rights on a reciprocal basis) respond the spectacular rise of airlines from the Gulf region? They are not alone.

The home countries of the Gulf carriers are putting together an impressive number of air services arrangements that the carriers can utilise, taking advantage of their geographic location between Europe, Asia and Africa, to exploit the sixth freedom opportunities that as a consequence become available.

Many of these Gulf carriers seem intent on gaining global market share at the expense of profitability, although financial information is simply not disclosed by airlines such as Qatar Airways and Etihad. Not having to pay tax and enjoying some of the cheapest landing fees in the world at their home airports no doubt helps, as does the fact that reciprocal rights for other airlines to serve the Gulf region are often of limited value.

As a consequence the Gulf carriers and their home airports now play a much larger role in their respective economies than is typically the case of international airlines in other countries.

22 July 2009

On 21 July 2009 at an APEC trade ministers' meeting in Singapore a new "blue sky" air transport agreement was signed by Hon Tim Grosser for New Zealand and Hon Stockwell Day for Canada. Both the Canadian and New Zealand governments have released media statements announcing the signing (see also previous post).

The new treaty removes capacity and capacity restrictions, and opens up fifth freedom opportunities for the airlines of both countries. It also includes an exchange of seventh freedom opportunities for freighter services.

The business aviation sector was hit even harder by the global economic recession than other sectors when US Congressmen and others criticised automobile industry chief executives used their business jets to travel to a hearing in Washington DC about the financial troubles they were facing. The CEOs had appeared at a hearing of the US Senate Banking Committee on 18 November 2008. This was covered in reporting on 19 November 2008 by ABC.

One has to wonder whether the critics even thought of the number of layoffs in the aviation industry that would be caused as a direct consequence of their remarks. One also has to question whether it would be good use of his time for the Ford CEO paid US$28m per year to be standing around in queues for check-in, aviation security and boarding!

Ironically Fox News reported on 18 February 2009 that the US fiscal stimulus package included tax breaks to buy business jets. This is done by allowing accelerated tax depreciation.

The subsequent investigations (the reports are available on the web site) have been controversial ever since, but have helped lead to a more comprehensive understanding of why aviation disasters occur and what can be done to prevent them.

I still remember the day when we heard the news that the aircraft had gone missing. I was a student attending the University of Otago in Dunedin at the time.

12 July 2009

Since the economic deregulation of New Zealand's domestic air transport market in the 1980s that, among other things, permitted ninth freedom cabotage, the government has not collected passenger movement statistics directly from the airlines. The three major airport companies, however, have been obliged to publish total domestic passenger numbers and this should give a comprehensive picture of trends. With the exception of an Air New ZealandHamilton (HLZ) - Palmerston North (PMR) sector, virtually all major domestic airline services in New Zealand originate, terminate or pass through Auckland (AKL), Wellington (WLG) and/or ChristchurchUPDATED (CHC) airports.

With a wish to see what impact the 10 June 2009 switch from Qantas to its subsidiary Jetstar will have on the overall New Zealand domestic passenger market, I have completed a couple of graphs through to May 2009 as a benchmark.

The second graph compares the percentage change between the month concerned and the corresponding month for the prior year.

The data sources for these graphs are available here for AKL, here for WLG and here for CHC. Unfortunately AKL and CHC airport companies have not made historic monthly data available on their web sites.

10 July 2009

Around six months ago I posted graphs of the Singapore spot prices converted to New Zealand dollars of aviation jet fuel and residual fuel oil (RFO) used in ships. The updated graphs through to June 2009 that follow illustrate how these spot prices have been rising in recent months.

On 10 July 2009, during a visit to Rarotonga, the New Zealand Prime Minister, John Key, announced that this financial year New Zealand will support the Cook Islands Government’s decision to underwrite any loss on Air New Zealand’s weekly Los Angeles-Rarotonga-Auckland route, with a capped $1 million contribution from the aid programme (see previous post).

On 9 July 2009 Virgin Blue Airlines Group and Delta Air Linesannounced that they would be seeking regulatory approval for a joint venture between the United States, and Australia and the South Pacific. The airlines are looking to collaborate "... on route and product planning, codesharing on their respective networks and extending frequent flyer program benefits and lounge access to customers of both airlines."

V Australia commenced operations from Australia to Los Angeles (LAX) on 27 February 2009, having had its start up delayed by the Boeing strike. Delta commenced operations from LAX to Sydney (SYD) on 1 July 2009.

Given the ACCC's January 2009 rejection of a tie up between Air New Zealand and Air Canada (see previous post) and the US Department of Justice submission on the application of Continental Airlines to join the Star Alliance and cooperate on trans-Atlantic services (see Docket), this new case should be an interesting one to follow. On 10 July 2009 the Sydney Morning Herald carried a story on the prospects.

Singapore, on behalf of Singapore Airlines, has long been seeking fifth freedom rights from Australia to enable it to compete on the Australia-US route. It already has the necessary rights with the US under the MALIAT.